Commission Orders Disallowance for Idaho Power

We blogged several times last year about CUB’s criticism of Pacific Power’s analysis (or lack thereof) of further investments in its coal fleet. In Pacific Power’s 2012 general rate case (UE 246), CUB argued that Pacific Power should have worked harder to evaluate alternatives that could have better benefitted customers—specifically, we argued that Pacific Power should have compared the cost of coal upgrades with generation alternatives, and that its analysis should have taken into account the timing flexibility of applicable federal and state environmental regulations. The Commission agreed with CUB on these two issues, finding that Pacific Power failed to explore alternative courses of action that could have allowed it to meet air quality requirements at a lower cost and risk to Oregon ratepayers, and that Pacific Power was imprudent because it failed to perform appropriate analyses to determine the cost-effectiveness of its investments. As we related in our blog post about that decision, the result was a $17 million dollar disallowance!

So what does this have to do with Idaho Power? Pacific Power and Idaho Power are co-owners of the Jim Bridger 3 Unit (JB 3).

At the same time that CUB was reviewing Pacific Power’s investments in its coal fleet, CUB was also analyzing Idaho Power’s share of clean air investments in JB 3. Pacific Power owns 67.7% of JB 3, and acts as its operator. Idaho Power is what we call a “minority owner”; it has the remaining 33.3% share of the Unit. In 2008, Pacific Power determined that it was necessary to upgrade the existing scrubbers (used to reduce sulfur dioxide emissions) at JB 3. The work was completed in 2011, costing Idaho Power approximately $8.2 million for its share. The Oregon-allocated portion of Idaho Power’s share of the investment was approximately $400,000; Idaho Power sought recovery of that amount in its last general rate case (UE 233).

CUB fought hard, arguing that Idaho Power was imprudent for several reasons—first, for completely delegating its management duties to Pacific Power; second, for not conducting adequate analysis of the scrubber upgrades in light of other resource alternatives and timing flexibility in the applicable environmental regulations; and third, that the upgrades were not used and useful in the provision of utility service without considering all investments that would be required to meet environmental regulations.

In its UE 233 Order the Commission agreed with CUB that Idaho Power’s management put ratepayers at risk, stating that “a minority owner who seeks to pass through to its ratepayers the costs of environmental upgrades may not sign away its independent duty to review and carefully consider a majority owner’s decision-making.” The Commission ultimately found that Idaho Power’s decision to invest in the upgrades was prudent, but it maintained its position that “Idaho Power’s management oversight of the investment was deficient” and therefore imposed a one-time utility management expense disallowance of $40,000 for Oregon customers—equivalent to 10% of the Oregon portion of the investment.

The biggest impact of this decision is that the Commission has made explicit the fact that it will not tolerate minority owners abdicating their management responsibilities and placing customers at risk, even when providence prevents harm to customers—a finding that CUB advocated for and fully supports.

This is a big victory for CUB and for Oregon ratepayers. We couldn’t have done this without the support of our members. Please consider becoming a CUB member today.

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